German Mortgages Explained
What are the costs for purchasing a house in Germany?
The costs involved in purchasing a property in Germany are among the highest in the world. This is one of the reasons why homeownership rates are among the lowest. Not to worry, buying a property can still be very worthwhile but you must educate yourself on the purchasing costs. Keep in mind that the main impact is that you need to stay longer in your new place for it to be worth your while. With the current low interest rates it does not take long for buying to be a better option than renting.
To get the best mortgage rate and ultimately the best return on your property over the long run, you will want to look at how to reduce the initial purchasing costs. The highest cost is the real-estate commission, this fee is up to 7,14% and commonly charged for existing property. Importantly, new properties are often purchased without a commission, as they can be purchased directly from the project developer. The amount of the commission is not uniformly regulated, (it’s agreed between the seller of the property and the broker) but is capped at a maximum of 7,14% of the purchase price. Since nearly all lenders require you to cover the purchase costs out of your savings, buying a property commission-free can have a significant impact on the amount you can borrow and the property you can afford. Check what costs you will be facing with the free affordability calculator.
The second highest purchase cost, is the property transfer tax, which is dependent on the respective region you are purchasing the property. For example, in Berlin the property transfer tax is 6% whereas in Munich it's only 3,5%. The third purchase cost is the notarization and the land registry office fee, which is between about 1,5% and 2% of the total purchase cost.
Therefore, the total purchasing costs can be as much as 15% in some areas, such as Berlin. As banks nearly universally require you to cover these purchasing costs from your savings, this is for most people the limiting factor in how much house they can afford to buy. Keep in mind, banks may make exceptions if you have an exceptionally high income and good job security.
Our affordability indicator allows you to explore options to increase the amount of house you can afford. Buying a new place is the easiest, borrowing from parents -if you have this opportunity- is another. Waiting and saving more is a third. Important is that you first closely review if and how much it makes sense to buy (instead of renting) and then if it makes a lot of sense, explore how you can stretch the amount of house you buy. Since the transaction costs are so high,it makes sense to buy a larger place that allows you eg to grow your family or add a hobby space and avoid moving house soon.